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A Green New Deal for Europe

Alistair Davidson looks at the possibility for uniting an anti-austerty agenda with a new green politics.

We are used to thinking of ourselves as just a wee country, but Scottish votes at the 2015 general election could play a decisive role in the politics of our entire continent. Scots are better-placed than anyone else in Europe to take anti-austerity politics to the centres of political power.

The outraged, defensive response from European technocrats to Syriza’s victor has highlighted their astonishing remoteness from the concerns of EU citizens. The threat that worker’s rights will be preserved, described as opposition to “reform,” upsets them in way that Greeks burning furniture for heat never did.

For Europe’s Tories, the EU and the Euro itself exist to force governments to move to the right regardless of the desires of their citizens. European free trade agreements regularly open up public utilities to competition. Grandfather clauses cool local opposition, but the agreements operate as a classic ratchet – once a right-wing government comes to power and privatises a service, it stays privatised forever. Regulations prevent, for example, the Scottish government from legislating to require that government subcontractors pay the living wage.

The Euro is even worse. In a crisis, governments should increase spending to get the economy moving again. Managed responsibly, this is safe, because a government can always take the last resort of printing money to get itself out of trouble. The Euro, and German-backed policy decisions at the European Central Bank, deliberately removed that option. The explicit aim is to force countries instead into a race to the bottom on worker’s rights (“labour market liberalisation”).

Europe needs change, and change will come. No government in history has been able to maintain austerity indefinitely. Inevitably, radical anti-austerity parties of the left and the right come to power. Europe is fraying at the edges – Scotland, Ireland, Greece, Spain, and Italy are in tumult. Soon chaos will arrive at the centre. What should scare us is that the credible opposition in France and England comes not from the left, but from the extreme anti-immigration right.

The left has to get there first, to carry our revolt from the fringes of Europe into the economic centres of England, France and Germany. There remains hope. The two anti-austerity left groupings in European Parliament, the European United Left – Nordic Green Left (Syriza, Podemos, Sinn Fein) and the Greens – European Free Alliance (Green parties, SNP, the Pirate Party) have 14% of MEPs, and following the Greek election control one government. Podemos and Sinn Fein could bring that up to three, but it is the SNP / Green / Plaid Cymru progressive alliance that offers our best chance to take the whip hand over one of the Big Three governments themselves.

The anti-austerity left has a simple, powerful proposal: the Green New Deal. This calls for a different form of Quantitative Easing (money printing). Rather than giving newly-printed money to large financial institutions, which mostly inflates asset prices, we could give it to a Green Investment Bank. This bank would build infrastructure across the continent, especially green energy production, a pan-continental energy grid, and the latest in public transportation. This would create the millions of jobs we need to rebuild our economy. It could also fundamentally shift the nature of the EU, in the same way that Roosvelt’s New Deal transformed the role of the American federal state. By giving the EU responsibility for employment and social progress, it could become the progressive union many of us always dreamed it could be.

I find myself agreeing with you on most of your points, it has been proved recently that Austerity has stifled growth, hopefully May GE will bring the changed needed but I don’t think the powers that be will give their money to a Green Bank, maybe offering assistance/loans through the ESF would be more palatable to them, a high speed rail links to the regions (rather than stopping at Manchester).

Because the UK has had very little Austerity (despite all the talk that gives the impression we have), the UK has the fastest growth of similar economies. The Coalition seems to have got a very good balance between cutting unnecessary expenditure, while still running one of the highest deficits to keep the economy going through this difficult time.
We do however need to reduce our debt from c100% of GDP down to c50% of GDP so that we have money available for the next rainy day.

It is strange listening to the UK’s ‘anti-austerity’ (reckless) parties – we are already running the biggest deficit in Europe and they want us to make it even bigger! I suppose these are the kind of people who live on credit card borrowing and end up declaring themselves bankrupt.

Andrew – If you want to reduce a deficit responsibly you do it by increasing the overall tax take. If the corporations, banks, hedge funds, land & property speculators & the multi-millionaires in our society are the ones who got us into this mess – by not paying their fair share of tax, legally or illegally – then its they who need to be targeted, not cutting necessary services.

What is “this mess”?
It is essentially the situation where we (the government) is spending more than it is taking in in tax.
What is it spending all of the money on? NHS, Education, Pensions, and Social Security are the main items of expenditure. It would be good if we could all have a spare room subsidised by the taxpayer, or if we could all get more from the government than we pay in but that is not possible.
Where does the money come from? Essentially from us – in Taxes – Income Tax, National Insurance, VAT, and smaller amounts from Corportation tax. Tell me which taxes you want to raise? You make this sound easy like Money grows on trees.
We would not be in “this mess” if Gordon Brown had used the good times to reduce the Debt, and to leave us with the option of running up a debt in a recession. He spent a lot of money on the Tax Credit system which we are now tied into. Our problems are largely caused by his belief that he had banished boom and bust. It is government largesse that is our problem.
Of course there are notable cases of corporations not paying a fair share of tax. This is largely caused by them finding cracks between the taxation systems of different countries and this can only be solved by greater cooperation and harmonisation of tax systems – in effect greater sharing of sovereignty between peoples – i.e. the rolling back of nationalism.

We’ve had less austerity than the eurozone, so we’ve suffered less. What we have had has caused damage though, and is unjustified. Ambulances queuing up outside hospitals because they hospitals don’t have the capacity to deal with the patients? We’re not suffering as much as the Greeks, but we’re suffering.

How does reducing the deficit mean more money is available later? It doesn’t. The money the UK government spends is created by that same UK government. They neither ‘have’ nor ‘don’t have’ it; they create it when they spend it. The constraint they – we – do face is in the capacity of the economy, not the existence of something we create out of thin air.

FilmFlamMan You are more or less saying that money grows on trees!
Which is essentially the story anti-austerity parties are trying to sell – a pig in a poke.
If we keep racking up the debt, at some point lenders will stop lending to the UK government, and hike up the interest rates – so there will be less to spend on service and we’ll be trapped.

If it grew on trees we could run out if there was a bad harvest. It doesn’t though, nor do we dig it out of the ground; money does not exist naturally anywhere in the universe. It is created by humans, the vast majority of it simply keystroked into existence.

The problems we face, or may face at different times, are related to creating too little money, which results in idle capacity and entrenched unemployment, or too much, which results in accelerating inflation. Which of those do we have now?

Lenders do not lend to the UK government. The very thing they are supposedly lending, sterling, is created by the UK government. Lenders wouldn’t have that sterling if the UK government hadn’t created it in the first place.

It was different under the gold standard, because then governments had to acquire gold, possibly through borrowing – genuine borrowing – before they could issue currency. It was different under the gold exchange standard too, because then governments had to acquire gold and/or US dollars. It is different now for Euro countries; they have to acquire Euros because they gave up their own currencies.

The gold standard is dead, and the UK has its own currency; UK government ‘borrowing’ is a fiction.

Why did UK bond yields not rise in the crisis, even when our ‘credit rating’ was cut? Because enough bond market participants understand that that ‘borrowing’ is a fiction.

Why did bond yields of some Euro countries – some with smaller fiscal deficits *and* smaller external deficits than the UK – go through the roof until the ECB stepped in? Because bond market participants recognise that for those countries, borrowing is real.

Profit warnings from companies in the FTSE 100 reached a six-year high in 2014, rising to a levels last seen at the peak of the financial crisis and real wages are about 8 per cent lower than before the crash and living standards are the lowest in a decade, quotes from probably one of your favourite newspapers The FT. Your beloved “Austerity programme is working BS and is based on the flawed paper “Growth in a Time of Debt,” by the Harvard economists Carmen Reinhart and Kenneth Rogoff.
The only country in the G7 with a worse GDP per capita is Italy, way to go, economic growth based on low paid 0 hour contract, the UK is in the top 10 economies for GDP and child poverty not something to be proud of.
The way Austerity is sold is flawed from the beginning, countries aren’t like people with credit cards, exactly the opposite.
Regurgitating msm propaganda.

@ Bella – You say that “the corporations, banks, hedge funds, land & property speculators & the multi-millionaires in our society are the ones who got us into this mess – by not paying their fair share of tax, legally or illegally.”

If you have any evidence that any of these institutions or individuals avoided tax illegally you should of course immediately inform HMRC, or at least post your evidence here for all to see. If you don’t have any evidence, then you shouldn’t say such things.

And maybe it would help if Bella and others let us know what the ‘fair share of tax’ would be, and why that would be fair.

In 2000-01 tax receipts were £358bn, rising to £574bn in 2013-14 – the highest ever and without doing the maths I’d guess that even in real terms that they have never been so high in recent history. Incidentally the tax take has been in a narrow band between 34.1% and 36.2% of GDP since 1997.

The real problem is that for years we have been spending more than we earn. In the same period since 2000-01 taxation has raised £6,555bn but spending has been £7,498bn, 14% more. It’s true that a big part of that has been since the 2008/9 crash, but the reality is that even in the boom years before then we’d been spending tomorrow’s money today. And now it’s tomorrow.

“The real problem is that for years we have been spending more than we earn.”

Who is ‘we’? The non-government sector typically spends less than it earns; it net saves. In spending more than it earns, running a deficit, the government is enabling that net saving. It fills the spending gap caused by net saving. The only way to get government running a balanced fiscal position is to eliminate non-government net saving.

Governments that try to run balanced or surplus positions, having previously run deficits, typically fail. This is because their position is determined by the decisions of the local private sector and the rest of the world, and short of totalitarianism those decisions are beyond the government’s control.

The government haven’t been spending today’s money or tomorrow’s, they’ve just been spending money, it’s not borrowed from the future.

“The government haven’t been spending today’s money or tomorrow’s, they’ve just been spending money, it’s not borrowed from the future.”
So who has the pay the money back? If tomorrow’s taxpayers have to pay the debts of today’s overspending then surely it is tomorrow’s money.
If it’s just money, as you say, then lets just spend spend spend!

Under the gold standard governments had to acquire gold before they issued new currency. So when a government spent it had to either acquire gold, allowing new currency to be spent, or acquire existing currency via taxation or borrowing.

This borrowing was real*; the constraint of the gold standard meant acquiring either gold, or currency via tax revenue, in order to pay back the debt.

Modern currencies are not backed by gold, so when sovereign governments** want to pay back debt they can simply create new money. Tax payers, present or future, are not involved.

All of which ignores the fact that debt tends to be rolled over rather than paid off, not least because the holders of that debt – mostly financial institutions – like the guranateed interest income.

The fact that we still have rules and practices held over from the days of the gold standard just complicates things unnecessarily. Government debt should not be issued at all, and government spending should be determined by, firstly, the political process – elections deciding if we want nukes or nurses – and, secondly, the effect of the spending on the economy. Which leads to:

“…lets just spend spend spend!”

As I said in another comment, spend too much and we will get accelerating inflation, so we can’t just spend spend spend, assuming that means spend without limit.

In fact, I see now that I said create too much money and you get accelerating inflation. That’s not quite right; it’s excessive spending that will drive inflation. You can create as much money as you like and it will do nothing if it’s not spent.

Inflation should be the limiting factor, not the size of government debt, or the government deficit.

* As real as anything defined by human law; when gold standards became too damaging they were abandoned.

** Meaning governments which issue their own currency, eurozone governments gave up that sovereignty and so their borrowing is real.

The proposed land rental ‘tax’ or levy seems a good idea. This implies those owning/using the more valuable land estates would pay proportionately more. Advocates of land reform in Scotland suggest this single payment could replace most if not all taxes. Seems this approach would also help reduce the price of land, thereby allowing for more economic development. Not sure of any downsides for us masses – wealthy vested interests are another matter. Their land holdings would definitely ‘capture’ them in a way that has been difficult before.

UK housing stock is worth £5.2tn; assume Scottish is 8.3% = £430bn
Assume housing stock is 50% of all property value – so total property is £860bn
UK government expenditure is £730bn; assume Scottish is 8.3% = £61bn
So to raise all the tax we need from property we’d need to tax property at 7.1% of it’s value every year.
Imagine is you live in a £200k house – you would pay £14k of tax every year.

These land rental value people say they’d only tax the underlying land value – not the cost of building the house. I wonder what proportion of property value is underlying land value – maybe 25%?? So we would need to set the tax at 28% of underlying land value annually – which is still £14k on a £200k house.

I think this policy is aimed to ending land ownership! Maybe the objective is to force pensioners into wee flats so that there are plenty family houses for young folk!